Sullivan Remix

About the middle of the month, I take a peek at the closed and pending sales data to see where we might be heading at month-end. This month was a bit of an eye-raiser. The number of sales seems to be holding, but the average and median sales prices are heading south. We could end up with a 3 month median sales price in the $150K range, and an average around $175K, both well down from the past few months. Anytime I see a big change in data, it always raises questions. So I took a look at the most recent closed sales, as well as the 106 single family homes categorized as "Pending" or "In Contract", which are indicative of what will be closing over the next 60 days or so.

The trend is very interesting. Among those pending and in contract listings, I didn't see a lot of houses that would generally be considered "second homes", but there were a lot of homes that would be traditionally considered "primary" — bi-levels, ranches on small parcels, new construction raised ranches and builders colonials. A quarter of the pending sales have asking prices under $100,000, and a number of these seem to be 'budget' primaries (smaller in-village houses, attached townhouses) along with some foreclosure fixers. There's a smattering of "second home style" properties, but nowhere near what I'm used to seeing in the mix, and most of those seem to be small, affordably priced properties.

Its going to be interesting to see how the month plays out. But it seems that a change in the mix may be having a significant impact on the perception of where prices are moving.

Comments

[JM]

Having a 2nd home in the country is comparable to having a restored 1969 Camaro.

It will cost 30+K to restore that muscle car and then the kids are born and then wife wants a new kitchen (or today loses her job) and out goes the Camaro for 15K at a local car show. You never recup what you put into it.

That is how it used to be with regards to the Catskills in the 70's, 80's and 90's.
People bought some land, built on it and then when the novelty wore off, they sold it and if they got 60-70% of their money back, they were lucky. Between 2001 and 2007, it was a different story. People demanded a profit after all the hard work and money they put into their 2nd home. Well, not anymore. Today, I can tell you that you are lucky to even get 50% of what you put into restoring an oldy. Same will go for the Catskills.

[David Knudsen]

JM, you're making a really broad generalization that I don't think is true. Sure, some people end up losing money on a second home that they've put a lot of time and money into. Some people make money, and others break even. There are a lot of factors that affect that. One thing I've riled about on here for years is people buying houses that involve significant compromises — like locations on main rather than back roads — and dumping tons of money into them. Likewise, there is a direct relationship between setting and parcel size, and the ultimate value of a property. I've seen people dump money into large additions on houses that skews them way outside of the value that their property will support.

There are other folks who bought at a reasonable price, did an appropriate renovation, and will likely come out just fine. The analogy, in one way, with your 1969 Camaro, is apt. It really isn't the Camaro itself that's the money pit, its what you buy it for and what you put into it, and also that what you do to it doesn't diminish its appeal as a collectible — like painting it a garish color and upholstering the seats in leopard prints.

[DN]

That's a good point, David. I've always heard you never want to own the most expensive house on the block, and your advise is a variation on that theme.

[cupcake]

Dave -
Please address that second homes are considered "discretionary".

People purchase second homes when they have: 1) secure jobs 2) property values (i.e.; their equity stake) is appreciating - not depreciating 3) are able to secure credit 4) interest rates are competitive - currently a F30 year mortgage is 6.6% - going up 6) on a local level - why purchase when their might be the topic of gas drilling and powerlines to deal with compared to other "beautiful" areas close to NYC which do not have either of those issues and 5) feel confident about the future.

And if you really need to get out of the city during the summer and fall - why not rent until the storm passes? Just like renting in Florida in the winter months.

Thanks Dave.

[David Knudsen]

Yes, Dave, second homes are discretionary, and the economic factors you mention will very likely have a negative impact on demand and pricing. I expect that rental demand will also increase, but there's the rub. There's a pretty limited supply of appealing rental properties both here in Sullivan and in other 'upstate' locales. In Florida, there seems to be a huge oversupply of rentals, with more coming on the market because of the overbuilding. Of course, because of the sales slowdown, there will be quite a few sellers who will decide to put their houses into the rental market next year, but I don't think we'll see a doubling or tripling of rental inventory.

[mlk]

Cupcake - Other beautiful areas have their (note correct usage) own issues - for instance, the NY Mag article about gas drilling noted that the discretionary homeowners in an area in Delaware Cty had just finished a battle against wind turbines that would have negatively affected the views from their homes.

Any 2nd home location will be much more sensitive to normal changes in a region or community - be it a traffic light, a new mall, a home-based business as a neighbor, or even new road lights that diminish the darkness of the night (or pollute the night sky).

[henry]

David,

I think that it is clear that prices are moving down. This is not surprising given the perfect storm that the second home market is facing and the dramatic runup in prices in recent years (far above income growth).

The mix issue is a good point and highlights flaws in the data set (which is NOT a knock on your work as I am a fan). Another conclusion that one could draw is that more expensive (and discretionary) homes are not priced at a level where there is demand. Pricing on these second homes may need to adjust more than the primary homes that are now selling.

[bix]

I'm not sure the Catskills will be hurt that much by the recession, for the simple reason that properties here are lower priced than they are in Ulster et al. People seeking bargains, who might otherwise have gone to Woodstock etc., may find this area more attractive.

I do agree that gas drilling will continue to put a question mark over the area. Concerns regarding that must be addressed, or it is going to hurt the market for second homes.

[henry]

Bix,

I STRONGLY disagree.

Gas drilling is a minor nuisance... relative to a recession (and worse, the possibility of a global synchronous recession). All real estate (along with most other assets classes) will be hit hard in a such a case. Second homes (whether in sullivan, ulster or elsewhere) are likely to be among the worst performers if history is any guide.

Look at car purchases in the last month with just the worry about the potential for an economic downturn (even in the face of declining oil)... Do you think that people are going to step up for the even bigger purchase of a second home if the worry becomes reality??? Watch buyers step back in mass and prices plummet.

[Junior Mac]

Prices are going to plummet indeed.
I have seen this before (1989-1997) but this....this is on a huge scale.

Nothing is selling anywhere upstate (ulster, sullivan, greene, dutchess or columbia).
Only primary residence is selling (below 120k for Sullivan residents)

I have access to all the stats Dave has access to and let me tell you, 2nd home buyers make up less than 5% today vs the boom times when they made up above 60%.

If stocks are down 30-40% look for real estate to mirror that at least.

[Elie]

I don't know about plummet. Things have already gone down. 30% from peak and peak isn't now. Maybe they'll go down further? I drove over to friends in Woodstock and their prices seem to have really gone down. I don't think the homes here will compete with the next door neighbor county over good deals. That seems to be in the past.

[David Knudsen]

Junior Mac, where are you getting your numbers? If you have access to the same data I do, I don't have a way to definitively calculate that second home buyers are 5%, or 25% or 60% of the real estate sales. Yes, there is a way to do it --- on a sale-by-sale basis --- looking at sale records, and comparing the owner address to the property address. But that's a tremendously time consuming job given that real estate sales data is not provided online by this county. In the Multiple Listing system, there is no buyer address provided, so the comparison can't be done there. And if you rely on third party data services like Realquest, their closed sales data is months out of date. So I'm not sure where you're getting your numbers.

If only houses below $120K were selling, then the median sales price would be below $120K. And its up around $150K to $160K.

It sure would be nice if people would identify themselves on here. If you have access to the same data I do, that would mean you're a Realtor or appraiser (since that's pretty much who access to the MLS is limited to), and if you're either one of those and you're going to make a broad public statement based on your interpretation of statistics, I think you should do it in the light of day.

[vicky]

I am a resident of Westchester and have family in Mamakating who work in real estate in Sullivan.
They've been saying that they have never seen conditions this horrible in 25 years of business.
They assert that listings are not getting offers, not even low balls. What is anything worth when it doesn't get an offer within a year?

[Henry Kravis]

Online at:
http://www.riverreporter.com/issues/08-10-23/head2-broker.html

Monticello broker sued for $2 million

Narrowsburg man charges fraud

By FRITZ MAYER

WHITE PLAINS, NY — According to court-filed documents, Frank Owens, a Tusten resident, has filed a lawsuit against local stockbroker Lloyd Barriger, the Gaffken Barriger Fund and other parties seeking at least $2 million in restitution. The complaint, filed in federal court in White Plains by a New York City law firm, alleges that Barriger and his associates defrauded Owens by investing $2 million of Owens’ money in a high-risk fund. According to the complaint, Owens’ investments in the fund were frozen in March, interest payments were stopped and Owens has not been able to access any of his money since.

{article continues at: http://www.riverreporter.com/issues/08-10-23/head2-broker.html}

[Mobi]

considering the new economic state of affairs (global recession, lack of bank credits, lack of offers on properties for sale "even low-ball offers" as vicky said, etc.) shouldn't a cash buyer be at an advantage? would a 40% of the asking price on a cash offer be considered a low ball offer? also, are there any cash offers made at this point in time? thank you

[Deflation Ghost]

Mobi,

Catskill sellers are still not mentally ready to let-go at 40% of their asking prices even though eventually that is going to be the reality. Only time will work its way to convince sellers that 250k for a {burnable} farmhouse on 30 acres is way too much money when only 10 years ago, you could have purchased same for under 100k. It's a waiting game now. During a deflationary deleveraging spiral, cash is king.

[Mister Nick]

One thing I've noticed just in paging through listings is that asking prices don't seem to have done much of anything. I started looking to buy a place almost exactly a year ago. I'm still seeing some of the same properties I actually visited in November still on the market, and still at a price that seems hard to believe. In the specific instances I'm thinking of it's some nicer, older, second home country house type places that usually look like the previous owner had done some work on them. A few in particular.

I'm just curious what's going on. Did the people assume they could renovate and flip and make a profit but decide to just wait it out and use the house themselves? It's a real pain leaving a listing active if you're serious, always having the place in showable condition, etc. Are they leaving the place vacant and just making mortgage payments and hoping some miracle will occur? Or are they well-off and/or have the place paid for and figure it's just another asset of many they have that has depreciated (ie everyone's mutual funds too) and they're just not dealing with it.

If I had to guess, my assumption would be that after paying a bunch of money and/or putting a ton of effort into something it's just psychologically impossible to sell at a loss. The other options are also unacceptable but that one is unacceptable and final.

I know personally, as someone who's now doing a pretty high end renovation of an old farmhouse with some land, I would have to be in catastrophic financial collapse before I sold at a loss. I've put too much work and effort into it, I just wouldn't do it. But then again I wouldn't sell for a profit either (except a ludicrously high one) because I bought the damm thing to actually use it. But I can understand the mindset.

It's odd though. Looking at listings and asking prices I think hell, what I paid for my place, including all the renovation, is incredibly cheap in comparision. But that doesn't make me feel like my house is worth a lot more than I think it is. It makes me think asking prices are still unbelievably out of line. Or alternately that everything will just sit illiquid for years until the inevitable serious inflation -- and yes, there will be serious inflation as there always is when the government fires up the printing presses like they are doing, with the current deflationary environment being a smokescreen -- catches up with inflated home values and the prices work again, nominally speaking.

[JM]

We are back to the 69 Camaro restoration project.
It costs 40k to restore that oldy but when wife says, "Its gotta go!", out it goes for a lousy 20k.

Upstate NY was this way before the artificial boom. Sellers hardly ever made their money back.
David was not up here before 1999. I was and can tell you how it was.

If you are looking to buy, look to buy from people who bought 15+ years ago, not from stuck flippers from 2004. ASK HOW LONG AGO THEY BOUGHT. And don't forget to bid low. I am amazed at how silly young folks are. On HGTV, I saw a couple bid 15k below asking price and they thought that was low-balling! Low-Ballig is offering 40% of the asking price.

Offers are far and few in the mountains. Those who bought 15 years ago will still make a good profit. Some older sellers are starting to let go while others are stuck on 2004 dumb money. The best is yet to come!!

[Mister Nick]

I agree to some extent about the Camaro restoration project. I had one of those too, in college. Well a 1973 Pontiac Grandville convertible with a 455 big block and dual exhaust and a stiffened suspension. Bought it for about 1000 bucks, fixed it up, mostly myself. Ended up selling it for 2 grand after it had been hit by a falling tree (it wasn't insured for that). Though I had a blast with it for years and the females liked it. So whatever.

But, um.. yeah. I get the concept. But the gloom and doom stuff also seems a bit silly. Let's all talk about what happened before 1999. Sure. While we're at it let's talk about what happened in the 70's when all the white people moved to the suburbs and cities went bankrupt. You'd probably have been the guy screaming about how nobody that buys brownstones in Brooklyn ARE SCREWED FOREVER and so on. Whoops.

It ain't 1999 again. The one thing that's constant is that in real estate that I can discern is that everyone's always fighting the last war. And falling into the classic trap of the Keynesian Beauty contest (ie http://en.wikipedia.org/wiki/Keynesian_beauty_contest ) mentality. Where they don't look at what they think or what makes sense for them but constantly try to second guess what everyone else will do. Meanwhile everyone else is trying to do the same thing.

I think the fundmentals long term for Sullivan are strong. New York City is the largest city in the most important country in the world and an enormous center of wealth. It's also paved over and cramped. Sullivan has nice open spaces and still reasonable prices for weekend homes under two hours away in good traffic, and lots of lakes and some well preserved green space. If you like that sort of thing then it's great.

As for prices... the only rule is to try to get the best possible price you can, don't back yourself into a corner. When you make compromises make the ones you can live with, not the ones that will bother you, and buy what you can afford and make sure what you pay is what you're willing to pay for the USE and ENJOYMENT you actually get out of the property. Natural inflation and forced savings of paying off a mortgage will likely mean you'll be OK over a reasonably long time period. Short term... well stop thinking short term. Historically that's not how wealth is created, nor is it how smart decisions are made.

But I don't care what Upstate NY was before 1999 all that much. Nor am I swayed by the insanity of 2003-2006 or so. I also don't care that the East Village was full of abandoned tenements and junkies. In my lifetime. Things change... if you're not looking forward you're wasting your time. Looking forward, the proximity of NYC, the value proposition of having a real rural experience that close, and the wealth and buying power of New York's population, I think have inevitable consequences. I'm not talking about 2010. I ain't no psychic and neither are the gloom and doomers around here either. The overall trends are much more interesting. IMHO.

[Judith]

I thought all the white people moved to the suburbs during 1999-2006 suburban sprawl?

Cities didnt go bankrupt but NYC almost did in 1976 b/c businesses moved out to lower tax locales (westchester, LI and jersey).

You still had around 20 million people around NYC metro area in the 70's and the upstate catskills had more wide open space than today. I think the fundamentals of yesterday are slowly disappearing (more gas, pollution, traffic)

[henry]

Mister Nick,

You put up a lot of straw men (http://en.wikipedia.org/wiki/Straw_man ... as if people can't look up a term that they don't know). I think that we all agree that SC has great attributes, that it ain't 1999, that people should buy for their use and enjoyment, that purchasers should have a long time horizon, etc.

Your keynesian argument is particularly silly. Flippers aside, do you really think that people don't take their own interest into account when making a major financial purchase like a home?

If you are looking for an argument to refute, try my bearish near-term view:

* After calculation of the economic cost, I have found that I have much better options than purchasing property in sullivan county at current asking prices. I note that there are many great substitutes for my summer recreation, and that I would buy if I found the right property at the right price.

* Property prices have more than doubled in the last five years. This increase is not based on income growth or fundamental change in the value proposition. Big red flag.

* Cheap and easy credit just disappeared. This is a major change for a society that has been living on borrowed money (often from borrowing against home price appreciation) and using ever more leverage to buy ever bigger homes.

* Wealth effect of a 40%+ decline in the stock market and a major decrease in the value of most primary homes.

* Drastically reduced buyer pool. Thinking of factors like people not being able to sell a home to use profits to buy a bigger place, and people no longer wanting or being able to lever themselves up to purchase a second home.

* Recessions lead to job losses, decreased income and decreased consumer confidence. NYC and Wall Street are in the middle of it... which is especially bad for upper-end SC properties.

* There is a large bid/ask spread and few sales... suggesting the SC real estate market is in adjustment mode. Given the macro environment and the large amount of SC inventory, I strongly suspect that prices here (and elsewhere) will be much lower in 1-2 years. Why buy now??? I didn't buy last year, and a 20% price drop to 2005 levels is not compelling against the current economic backdrop. Why not take an amazing trip to the south pacific for the summer (at much less cost than the SC real estate that I am considering) and see what is available in a year or two? Why not wait a year to make sure that our economic and financial system is not collapsing? This option has great value.

Last thought... If you see a train coming, doesn't it make sense to get out of the way? I, for one, see no need to jump on the tracks.

[henry]

Should have been "at much less than the economic carrying cost of the SC real estate that I am considering"

[Ghost of housing and land boom]

It all boils down to the cardinal rule that the smartest and richest real estate investors follow: when no one is buying then thats the time you buy and seek out the motivated sellers that need liquidity.
Obviously this country is in financial distress because the masses were competing against each other by over paying and driving up prices for no good reason ( dumb money chasing smart money), it's unfortunate but too bad. For the next eight years you will see the smartest real estate investors take control of the market. If you can hold on to your cash and wait you will be rewarded.

[bix]

JM -- I agree with you to some extent about buying from people who've owned the house for a while and not flippers. However, what matters is not how long the previous owner had the house but whether the house is a good value. Buyers get to know the few gems from the many dogs after a bit of looking.

My new house was bought from people who'd owned it for decades; it just needed a little cosmetic stuff but was basically in great shape. I saw LOTS of houses that were incredibly overvalued or otherwise deeply flawed. I knew after looking for a while that I had to jump on a house that met all my criteria and seemed reasonably priced.

[P Myers]

HOLD ON TO YOUR CASH WHILE IT IS HAILING!

[Jeff Milton]

US equities futures tumble today.
I expect a shut down of US markets today and possibly next week.

Jeff

[Judith]

Another thing to consider is that housing doesn't bottom until after a recession ends. It is delayed by 2 years. If we have a 2-3 year recession as most are now predicting, you can count on housing bottom to be around 2013-2014. In the meantime, sellers will be fighting to hold on until certain conditions force them to sell. It's the great unwind.